The United Nations underlined the May watershed for grain markets as it hiked its forecast for world cereals production by 21.5m tonnes – mainly down to an upgrade to the US corn harvest.

The outlook for world grain supplies in 2014-15 has "improved considerably" over the past month, the UN food agency, the Food and Agriculture Organization said, upgrading by 10m tonnes to a 13-year high of 576m tonnes its estimate for inventories at the close of the season.

The improvement was reflected in a further decline in world food prices in May, including in grains.

"We went into May with concerns over unfavourable weather conditions, especially in the US, and geopolitical tensions in the Black Sea region," said Abdolreza Abbassian, FAO senior economist.

"But towards the second half of May, we began to see lower wheat prices following improved weather conditions and the continuation of regular shipping patterns from the Ukraine."

The reduced concerns have been reflected in futures markets too, with wheat futures falling by 10 consecutive sessions until Wednesday, its longest losing streak in 20 years, and corn futures also showing heavy losses.

'Improved outlook'

The FAO lifted by 18.6m tonnes to 1.27bn tonnes its forecast for world output of coarse grains and wheat in 2014-15, nearly all down to an increase in world corn output.

The organisation flagged "bigger than earlier anticipated corn harvests in Argentina and Brazil", and an "improved outlook" for US corn, "where planting is near completion under generally good weather conditions".

"The anticipated decline from 2013 would be mainly on account of a small reduction in plantings, outweighing expectations of above-average yields," the FAO said.

Some other forecasters foresee a bigger drop in US corn production this year, with the International Grains Council pegged the harvest at 350m tonnes.

Ample inventories

The world wheat harvest was upgraded by 1.0m tonnes to 702.7m tonnes, with downgrades to US and India production estimates offsetting most of the upgrade to Argentine, European Union and Ukraine crops.

With expectations for consumption downgraded a touch, world wheat stocks are seen ending 2014-15 at a four-year high of 181.7m tonnes, equivalent to a stocks-to-use ratio of 25.5%, the largest in three years.

The stocks-to-use ratio is seen as a key price indicator, showing the availability of supplies, and thus indicating the extent that buyers will need to pay up to secure them.

For coarse grains, the stocks-to-use ratio is seen ending the season at a more modest 16.6%. However, this represents the highest figure since the 1990s.

"The largest build-up is projected for the EU and the US, more than offsetting a possible decline in China," the FAO said.

For rice, the estimate for world carryover inventories was lifted too, by 2.1m tonnes to 182.2m tonnes, on increased hopes for the Chinese harvest. This put a ninth successive rise in stocks on the cards.

Dairy prices tumble

Nonetheless, the FAO food price data showed dairy prices declining most strongly last month, by 5.0%, taking their losses in three months to 13.2%.

"The market for dairy commodities is readjusting, following a period of exceptionally high prices in 2013 and early 2014, caused by limited export supplies," the agency said.

"In recent months, the production outlook has improved and, in general, buyers are purchasing only for immediate needs, in the expectation that prices may fall further."

Sugar prices bucked the trend, adding 3.7% over May to a seven-month high.

"Sugar prices rose amid early forecasts for the 2014-15 season pointing out to a possible production deficit, with El Nino weather likely to exacerbate the fall in output."